Don’t underestimate the headache of apparel returns, Gartner tells Amazon
The high rate of returns in online apparel sales could undermine Amazon.com Inc.’s new relationships with clothing retailers, warns Gartner Group Inc.’s GartnerG2 Retail Services Group. “On the surface, this appears an easy deal, with advantages on both sides,” says a report from Retail Services Group research director Geri Spieler. “Nonetheless, GartnerG2 feels that Amazon.com may have underestimated the complexity of resolving returns, which is a major headache for every clothing retailer. Amazon`s partner retailers will handle the physical returns in most cases, but Amazon.com is processing the cash transactions, and that means managing refunds and credits as well.”
Spieler estimates that returns for apparel purchased online amount to 20% of sales last year and this year and in some cases reach 35%. Each return costs $3 to $12 to handle. “With high turnover of apparel, the cost of processing a return reduces or eliminates the profit on each item and cuts deeply into the overall profit margin,” Spieler says. “The potential fees could cost Amazon a bundle if they do not charge the retailer for these transaction fees.”
Spieler recommends that Amazon negotiate to protect against the high cost of processing returns and require all apparel retailers to have uniform return processes using a web template. Amazon can cut costs substantially if it automates the process as much as possible, she says. Spieler also recommends that the apparel retailers help Amazon install online fitting technology to reduce returns and the associated costs. “Prevention is the best medicine in this case,” Spieler says.
Amazon last week began testing online apparel sales with a number of well known online brands, including Lands’ End, Eddie Bauer, Nordstrom and the Gap. “With this latest deal, Amazon.com is attempting to become the biggest portal online. But with this venture into the world of online apparel sales, Amazon.com may be over-reaching and could undermine its heretofore successful business model,” Spieler’s report says.
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